Surety Bond

What is a Surety Bond

A Surety Bond or simply just known as a BOND is defined as a contract among at least three parties: the obligee – the party who is the recipient of an obligation. The principal – the primary party who will perform the contractual obligation. The surety – who assures the obligee that the principal can perform the task.

Types of Surety Bonds

How Do Bonds Work?

Surety Bonds make sure that specific tasks are fulfilled. This is achieved by bringing three parties together in a joint, legally binding contract.

The PRINCIPAL is the individual or business that purchases the bond to guarantee specific tasks get done.

The OBLIGEE is the party who is the recipient of an obligation. Obligees are typically government agencies working to regulate industries and reduce the likelihood of financial loss.

The SURETY is who assures the obligee that the principal can complete the task. The surety provides a line of credit in the event the principal fails to complete the task.

The obligee can make a claim to recuperate losses if the principal does not fulfill the task. If the claim is effective, the insurance company will pay reparation that cannot surpass the bond amount. The underwriters will then expect the principal to return them for any claims paid.

Contractor License Bonds

License and permit bonds, also known more simply as “license bonds” or “permit bonds,” are a specific type of commercial bonding. Government agencies require business owners in certain industries to purchase these bonds before they can be legally licensed. They protect consumers by guaranteeing businesses adhere to laws and other regulations enforced by federal, state and local government agencies.

Even though they’re actually a type of license and permit bond, contractor license bonds are often mistakenly grouped in with contract bonds since they’re used by construction professionals. Contractors must purchase these bonds before they can receive their contractors licenses at the state, county and/or city level. These bonds ensure that contractors follow all applicable licensing laws and regulations.

Bid Bond / Performance Bond / Contract Bond

The terms “contract bond” and “construction bond” are essentially two different names for the same thing. A contract bond is a type of surety bond that guarantees contracts are fulfilled. If the contracted party fails to fulfill its duties according to the bond’s terms then the project developer can make a claim on the bond to recover financial losses. Although they can be used for many reasons, contract surety bonds are most commonly used in the construction industry to ensure projects are completed according to contract. For this reason, “contract bond” and “construction bond” are often used interchangeably.

Project developers might require a number of different construction bond types throughout the duration of a project to ensure it’s completed according to contract. Surety bonds are almost always required before work can begin on public projects – especially those that are federally funded – but private project developers can also require contractors to file certain types of surety insurance before work can begin on their projects.

Bid Bonds

Bid bonds make sure that contractors submit serious bid proposals. These bonds reassure project developers that bidders have the financial credentials necessary to accept the job. If a bid is selected and the contractor declines the job or retracts the bid, the project developer can make a claim on the bond to recoup the difference between that bid and the next-highest bid.

Performance Bonds

Performance bonds guarantee that contractors complete projects according to contractual terms. If a contractor fails to do so, the project developer can make a claim on the bond to access funds that can be used to pay a second contractor to finish the job. The Federal Miller Act requires that performance bonds be used on all federally funded projects worth $100,000 or more.

Business Bond / Employee Dishonesty Bond

Business service bonds protect consumers from the potential theft that could be committed by company employees who work in clients’ homes or offices. Business service bonds are optional insurance products that are purchased by many different types of businesses, such as:

pest control services

general repair services

pool cleaning services

security/surveillance guards

carpet cleaning companies

appliance repair services

locksmiths

painters

pet sitters

child care professionals

moving companies

gardeners/groundskeepers

If your employees work in clients’ personal spaces, purchasing a Business Service Bond is an impactful, cost-effective way to promote your company as a credible enterprise that has clients’ best interests in mind.

Workers’ Compensation Insurance

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Tools & Equipment Insurance

Bid bonds make sure that contractors submit serious bid proposals. These bonds reassure project developers that bidders have the financial credentials necessary to accept the job. If a bid is selected and the contractor declines the job or retracts the bid, the project developer can make a claim on the bond to recoup the difference between that bid and the next-highest bid. Learn More

Property Insurance

Performance bonds guarantee that contractors complete projects according to contractual terms. If a contractor fails to do so, the project developer can make a claim on the bond to access funds that can be used to pay a second contractor to finish the job. The Federal Miller Act requires that performance bonds be used on all federally funded projects worth $100,000 or more. Learn More

Commercial Auto Insurance

Business service bonds protect consumers from the potential theft that could be committed by company employees who work in clients’ homes or offices. Business service bonds are optional insurance products that are purchased by many different types of businesses, such as. Learn More

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